Why am I here?
Weeks like this are why you want to understand why you buy a stock in the first place.
Some Friday evening musings to see if any thing has changed -
The Competition
The major competition appears to be developing in the form of the TransPoint service which is a joint venture of Microsoft, First Data, and CitiGroup. Several smaller players as well as homegrown systems from financial institutions exist. This market (IMHO) will be one that demands scale (or a defined market niche) in order to compete successfully. This is very similar to the situation in the financial services market today. There we see a great deal of consolidation occurring as we go from a large number of players to a smaller number of scale players plus niche players. In CheckFree's market, we have a relatively small number of players in a rapidly expanding market with some fairly sizeable barriers to entry. Thus my expectation is that the market is likely to evolve with 2 - 3 scale players controlling around 80% of the market and a number of smaller players splitting up the remaining 20%. Even 1/3 of 80% of the ultimate market would provide tremendous growth opportunities for CheckFree.
Ok, we potentially have added one of the scale players, but 1/3 of 80% of the ultimate market is still attractive.
Keys to Success
The primary key to success (IMHO) is distribution. Then come service, product, and technology. These factors are interrelated since you need to meet minimum levels of service, product, and technology to play the game and they can be important factors in differentiating yourself with the distribution systems.
And CheckFree currently has the major portion of the distribution systems in their corner. It possesses electronic banking and billing relationships with 40 of the top 50 banks in the US and 25 of the top 100 billers (including the largest AT&T and 8 of the top 10) representing 56% of the telecommunications bills sent in the US. It serves the electronic billing gateway for the Integrion banks and is in a joint venture with Visa for providing on-line payment of electronic bills. It also has reached an agreement with Oracle to use their databases which will provide access to the Oracle sales system to help maintain their lead in distribution.
Ok, Integrion isn't adding much if anything. Still have banking relationships, but getting some potential competition here. But added portals to the mix. I dunno guys - looks like a net gain in the long run.
Current Advantages
Relationships
-- Integrion alliance - CheckFree is the preferred bill payment/presentment provider. Integrion collectively represents 75% of the Check books in the U.S. In addition to Integrion, CF has contracts with 300+ banks.
-- Intuit - CheckFree provides bill payment/presentment for Quicken, Quicken.com, BankNow, etc. Quicken has about a 80% market share.
-- CheckFree has contracts with 24 of the largest biller, including the largest biller, and the largest statement processor.
-- Visa Deal - This will allow CheckFree to process 85% of their transactions electronically.
-- AT&T relationship.
CheckFree added relationships with new distribution outlets at expense of some rough spots with existing relationships (eg, just worked through Intuit spat / TEX announcement.) But again, it seems to have positioned company better for the long run.
Experience
-- CheckFree has spent years building a merchant database that is unmatched, and allows CheckFree to pay bills on time with consistency.
-- CheckFree has been in the business for 15 years and understands it.
Technology
-- CheckFree has working systems
-- They have completed development of their next generation technology and are in the process of rolling it out.
Next generation system out. Everything else stills hold. Did right by their customers when handling glitch in the new system recently.
Barriers to Entry
-- Long term contracts. CheckFree has 10 year contracts with many of its distributors.
-- CheckFree has been paying bills electronically for 16 years, and is the proven market leader. Bill payment is a very difficult process.
-- CheckFree has locked up the banks, and therefore, locked up the best interface for paying bills - On-line Banking.
-- "Dial tone" quality required in this market. The financial service firms which are their customers require processes and systems which work right 24/7/365. They can't afford to be working with a provider who is learning on the job. Through its ACH payment work, CheckFree has built up a trust relationship with its customers and an understanding of their requirements.
ok, so the banks aren't as locked up as I thought. But in the interim, my thinking has evolved to where I see on-line banking type activities coming from more sources then just the old brick and mortar banks. I am no longer sure they will even be the preferred source going forward. And I think the trend to outsourcing back office functions in order to concentrate on core competencies is going to increase.
Bottom line from my perspective - changes over the last 6 months have been net positive.
HRM |
